Explain what happens to saving, investment, and the real interest rate in each of the following scenarios in a closed economy. Illustrate your answer using a saving-investment diagram. Label the axes and curves clearly.

a) Real money supply increases

b) The tax code changes so that business firms face higher tax rates on their revenue (offset by other lump-sum tax changes so there’s no overall change in tax revenue).

c) Current output rises

d) The average educational level rises, inducing an increase in the future marginal productivity of capital.

e) A temporary increase in government purchases for military purposes. Does it matter whether the temporary increase in military spending is funded by taxes or by borrowing?